Corporate Club Membership Fees Incurred for Commercial Expediency Cannot Be Treated as Personal Expenditure: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), Delhi Bench, deleted disallowance made towards club membership expenditure after holding that corporate membership obtained for facilitating business operations was allowable under Section 37 of the Income Tax Act, 1961.

The assessee, Metal One Corporation India Private Ltd., engaged in the business of import, export and trading of steel and allied products, had incurred expenditure of Rs.15.52 lakh towards various club memberships during AY 2018-19. During assessment proceedings, the AO treated the expenditure as personal in nature and disallowed the same under Section 37 of the Income Tax Act.

The CIT(A) sustained the disallowance made by the AO.

Aggrieved by the order of the CIT(A), the assessee preferred an appeal before the Tribunal.

Before the Tribunal, the assessee relied upon the decisions of the Supreme Court in United Commissioner of Income Tax v. United Glass Manufacturing Co. Ltd. (2012) and the Delhi High Court in CIT v. Samtel Color Ltd.,(2009) where it was held that expenditure incurred towards corporate club membership for business purposes is allowable under Section 37 of the Act.

However, the Revenue relied upon the decisions of the Delhi High Court in CIT v. Eicher Ltd.(2007) and the Gujarat High Court in Sayaji Iron & Engg. Co. v. CIT (2002) in support of the disallowance made by the AO.

The Tribunal comprising S. Rifaur Rahman (Accountant Member) and Sudhir Kumar (Judicial Member) observed that expenditure incurred towards corporate club membership for business purposes is allowable under Section 37. It further observed that the decisions relied upon by the Revenue were distinguishable from the facts of the present case and therefore could not justify disallowance of the club membership expenditure.

The Tribunal noted that the test under Section 37 is whether the expenditure was incurred wholly and exclusively for business purposes and that enduring benefit by itself is not conclusive for treating an expenditure as capital in nature. It also observed that corporate club membership merely facilitated smooth and efficient running of business operations.

Accordingly, the Tribunal deleted the disallowance towards club membership fees.

The assessee’s appeal was allowed to that extent.

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